How To Choose An Equipment Leasing Company

Leasing has become a preferred form of equipment financing, accounting for more than 30% of business equipment acquisitions. Each year, thousands of U.S. companies face the challenge of finding attractive financing to acquire business equipment. Many of these companies approach the lease sourcing process seeking the lowest lease rate. While securing a low rate is a worthwhile goal in choosing a leasing arrangement, it alone is usually not a reliable standard for obtaining the best lease transaction or leasing experience.

To obtain attractive lease proposals and to avoid lease blunders, make sure you choose the right leasing companies to bid. Ultimately, the wrong lessor choice can result in a slow approval, inability of the lessor to deliver, hidden fees, substandard lease terms, or worst. To secure the best lease arrangement, you must do your homework in pre-qualifying bidding leasing companies. Give this aspect of obtaining an attractive lease arrangement your highest priority.

How Leasing Companies Differ

Leasing companies can vary in a number of ways. Some specialize in specific industries, some in lease types, some in certain equipment types, and still others in transaction sizes. For example, some leasing companies specialize only in a single industry like health care, printing, agriculture, or transportation. Others focus exclusively on a lease type. They may only offer operating leases for equipment with attractive residual values. Some lessors specialize in full-payout finance leases. Still others focus on small ticket transactions with equipment cost under $ 100,000. It is important to understand the specialization of the lessors bidding on your lease transaction. To get the most attractive deal and to avoid the run-around, stick with lessors who focus on the type of transaction you are seeking.

Leasing companies also differ in resources and capabilities. Many large leasing companies are owned by banks, financial companies, or other large industrial concerns. These firms usually have abundant resources and expertise in a number of leasing segments. Mid-size and smaller leasing companies greatly outnumber large lessors. While these companies cannot match the resources of their larger brethren, they often have highly skilled professionals, sufficient resources and more flexibility to meet lessee needs. The goal is to obtain the best leasing arrangement for your firm. By establishing priorities for the leasing arrangement you are seeking, you will be able to determine whether a leasing firm with sizeable resources or one that is nimble and flexible is a better choice.

When And Where To Look

The time to start your search for a leasing company is early in the lease-planning phase, once you have established criteria for a leasing arrangement. Some criteria to consider for a leasing arrangement are: pricing, monthly cash outlay, financial statement impact, the appropriate lease type, lease term, lease flexibility, lease facility size, and whether your equipment will be accepted for lease. Use criteria like these and the qualities you are seeking in a leasing company to start your lessor search.

A great starting point for finding bidding leasing companies is through professional and personal referrals. Check with your attorney, your accountant, bank contacts and colleagues in your industry. Also ask friends and acquaintances who use leasing in their businesses. Asked them for contacts at leasing companies that specialize in your industry or that offer the type of lease you are seeking. Call your industry association and ask whether they have names of leasing companies serving others in your industry.

Another approach is to call a couple of the major equipment leasing trade associations. Major association websites include: www.elaonline.com, www.eael.org, www.uael.org, www.naelb.org, www.aglf.org, www.mael.org, and www.nvla.org. Describe the type of equipment and the industry you are in. Ask whether they are in a position to provide you with a list of members to contact regarding your lease. If you receive such a list, you may need to narrow the candidates based on further homework and the criteria you have established.

Evaluating Leasing Companies

Qualities to look for in any leasing company you consider include: 1) experience and expertise; 2) reputation; 3) ability to perform; and 4) a relationship approach.

Interview prospective bidders carefully. Discuss their expertise and experience in the leasing business. Ask about experience with the type of transaction you are seeking, involvement with similar firms in your industry, and the types of lease products they offer firms like yours. Discuss your equipment needs. Find out whether they will be able to lease most of the equipment you need. Ask whether they will finance your lease using internal funding or whether they will broker the lease to another funding source.

Get enough information from and about bidding lessors to decide whether to include them in the bid process. If possible, ask for financial information from potential bidders to evaluate their financial condition. Also, if you can, obtain a Dunn and Bradstreet report ("D&B") for each bidder. In the D&B report, look for lawsuits filed against the lessor, judgments, severe payment delinquencies, poor financial performance and similar issues that might impact performance on a new lease transaction.

Ask for and check customer, vendor, bank and trade references for each lessor. Contact each reference and verify key information given to you by the lessor. Ask how the lessor handles its account and whether there have ever been any problems or issues. Ask customer references about the lessor's ability to perform and about attentiveness to customer problems and concerns.

Investigate bidders online. Check Google (www.google.com) to see whether prospective bidders appear in any newsworthy articles. Hit the message boards and newsgroups. Look for unresolved problems, fraud, financial problems, success stories, and awards. Visit bidders' websites to get as much information as possible before extending an invitation to bid. You may be able to screen out undesirables.

Lastly, make sure prospective bidders belong to one or more industry trade association. While membership alone does not speak for the integrity or expertise of members, most of the associations set standards of conduct for their members.

A Word About Lease Brokers

Lease brokers serve roles similar to insurance brokers. They profit by placing lease transactions with the ultimate financing sources for those transactions. You should decide whether a lease broker would serve you better than seeking direct bids from lessors. Lease brokers can be useful in finding sources for difficult transactions, due to weak credit or unattractive equipment. They also can be useful in placing transactions that are highly specialized. Only work with lease brokers who have high integrity, who have a good understanding of leasing, and who understand the market you are in.

The entry bar for becoming a lease broker is relatively low and not all brokers are well trained or reputable. Check the broker's references and capabilities thoroughly. Check to see whether the broker belongs to the national trade association for lease brokers, NAELB (www.naelb.org) or to one of the other major equipment leasing associations. Use the same guidelines for evaluating brokers as outlined above for leasing companies.

Parting Words Of Caution

Avoid high-pressure lease sellers. Whether they are brokers or leasing company representatives, the odds of you being misled or disappointed with the outcome are very high. Only work with lease representatives or brokers who have a good understanding of leasing and who are sensitive to your needs. To do otherwise might result in delays or disappointment.

Avoid giving lease deposits or advance rentals to brokers. Brokers do not provide the financing directly and, in possession of your money, represent a potential credit risk.

If the lease broker or leasing representative says anything that constitutes a significant misrepresentation, walk away. Chances are the first such misrepresentation won't be the last. There are too many knowledgeable leasing professionals with high integrity. Avoid spending time with those who are unprofessional.

Lastly, make sure you get at least three or four lease bids from qualified lessors, if you can. At the end of the day, lease pricing is market driven. Getting several bids will help ensure that you get competitive pricing and terms.

Choosing the right leasing company is worth the effort. By taking a few easy steps during the planning and bidding phases of the lease procurement process, you can eliminate or greatly reduce time wasted with unqualified lessors. You can also avoid getting the run-around. Allow enough time to carefully check out all bidders. Be partial to lessors with high integrity, great reputations for performance, good expertise and who communicate well with you. You will invest a little time upfront, but you will thank yourself later.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"). He is responsible for overseeing the company's marketing and financing efforts. One of the co-founders of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: http://www.ltileasing.com

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